Pulte CIO Has Cloud Horror Story

You'll have to excuse Jerry Batt if he's a bit grouchy these days. Amid all the talk of cloud computing and its ability to deliver lower costs and unprecedented flexibility, and to free IT staff to focus on bottom-line impact, Batt, the CIO of Pulte Homes, has had enough.

Well over a year ago, Batt told me that his confidence in the cloud had been destroyed. He'd made an aggressive leap by deploying a large IT vendor's on-demand CRM application, imagining all the benefits he'd been told about, both by the vendor and his peers at other companies. He and his staff spent weeks ironing out all the integrations between the CRM application and several other IT systems, a process that proceeded smoothly. But when it came time to make changes to the CRM configuration, all the other applications went down, forcing Batt to uncouple everything and rethink things. It was easy to understand his frustration.

Well, I got to talk to Batt again this week, thinking that by now he'd have had his concerns assuaged by the vendor, and would at least be evaluating a renewed foray into the cloud. I couldn't have been more wrong. As it turns out, Batt is even more suspicious of the cloud today, and it's that same vendor that's shaken his confidence.

What, you ask, could possibly have been worse than his initial experience? Try this on for size: He'd originally signed a long-term agreement with the vendor, committing to pay for the service into 2011 and had paid for some period of time up-front. When the second installment was coming due, he reasonably asked to have it deferred since Pulte hadn't been using any of the capacity it had paid for anyway.

The vendor not only refused to defer the payments, it told him that if he didn't pay, it would shut down access to the service altogether. All of which has led Batt to question the messaging cloud providers have been putting into the market about being able to dial back a service when capacity's not needed. It especially irked him that the vendor seemed unsympathetic about the beating Pulte and other homebuilders have taken in this rotten economy. The episode has led Batt to conclude that the big vendors--or at least, the unnamed one in question--have decided that giving up the software licensing cash cow is too much to face, and that they have to extract their profits somewhere.

Make no mistake--the main thing preventing cloud computing from taking off among the Fortune 500 is that the offerings thus far from big IT suppliers are not thought to be up to snuff. And Batt suggests that IT industry consolidation has resulted in the vendors on that short list having way too much power when it comes to pricing.

It's impossible to conclude from Batt's episode that other large companies venturing into the cloud are experiencing similar nightmares. Most companies wouldn't say if they were having this experience anyway. But the inability of cloud vendors to offer up significant case studies involving big-name companies shows that the cloud isn't enterprise ready yet.

Batt's tale does, however, hold clear lessons for other large companies. For one thing, it highlights the need to negotiate every last detail of a cloud service contract, from asking for SLAs that cover integration issues to ensuring that scheduled payments can be adjusted if usage needs change downward. It also serves as a reminder that, as another CIO told me recently, "Pioneers take the arrows."

Perhaps someday, other IT leaders will tip their caps to Batt in appreciation. For now, such a prospect isn't enough to offset the bitter truth: Batt has been wounded by his experience in the cloud, and it'll be years before he's able to trust it again.

More coming: Look for my package pitting the hype behind cloud computing versus the reality in an upcoming issue of CIO Insight.

34 Comments
for "Pulte CIO Has Cloud Horror Story"

Yes, the vendor should be accommodating regardless of what the contract says. It is good business.
After running a SaaS application as a vendor for a number of years and now as a SaaS adoption consultant, I am aware of dozens of distinct differences from site installed systems that need to be handled. SaaS is all about anticipation of those issues, building terms into contracts and understanding how to integrate in a way that prevents problems. But unfortunately, it takes a few skinned knees to get that understanding into the marketplace. Taking the 'I can figure it out on my own�™ approach while popular can be risky.
Also, I would suggest that avoidance of SaaS is not the answer either. There are too many benefits to be gained. The only real difference between SaaS issues and other types of systems issues is that there is less real life institutional knowledge in companies to mitigate risk properly.
Kim Terry
www.terrosatech.com

I Agree with the Pulte Karma comment.
A company who regularly forces its subs into court
to lower and secure pennies on the dollar on completed work payment, as a standard business model, approaches the CRM vendor and applies the same tactic's it uses on all B2B relationships normally is news in what way????
This is how they operate daily, with everyone..
If your the Portajohn sub, you have to go to court and file a lien on a $1200 Invoice for service...
This is not news!! To them it is just business as usual.. As distasteful as it is.

I have been on both the buy and the sell sides of IT infrastructure services. While service level agreements and performance penalties sound logical, the reality is that 80% of outsourcing agreements are renegotiated after 18 months. Both sides begin outlining terms to protect themselves from internal criticism from their own firms. If you want it to work, you need to structure it as a partnership which adjusts.
YES WE ALL WANT TO KNOW WHO THE VENDOR WAS. BUT, the blame is on both sides.
The US legal system is by lawyers for lawyers. We all know CIO means "Career is Over." Hence, the tension.
Outsourcing and "the cloud" have advantages for firms with limited scale or global reach. After 30 years of domestic and global outsourcing experience on both sides of the dance, it is my experience, shared risk and reward for BOTH parties, combined with periodic adjustments based on usage and performance actually facilitates the partnership.
Forget 10 year conctacts unless ypi expect your vendor to eat the capital costs up front. NEVER start with mission critical applications. Be sure you have a CEO to CEO commitment. Make metrics rigid but apply penalties only when you are ignored. If you conract for X and use .5X understand that the other guys provisioned for the capacity you wanted them to provide.
If you expect variable cost from a cloud arrangement, plan capacity quarterly. There are also proven organizational and relationship managment arrangemets that work and some that NEVER work. Don't fall on your sword. Learn from pioneer scar tissue.
Once upon a time, the cloud was called TIME SHARE because the capital cost of hardware was the driving factor. Any CIO with a pulse should at least consider the cloud as an approach to cost variability and capacity on demand. Start from the perspective that what you really want is 100% variable cost linked to business volume. Then, figure out how close to that you can get. The larger the firm, the more internal scale economies become a factor.
The bottom line is: WAHT IS YOUR CORE BUSINESS?
What if you could focus on that and find a partner with synergistic capabilities to focus on his own. What if you could structure a deal that is a win-win or lose lose. The pivot factor is scale associated with capital outlay vs. variable cost. It s my personal opinon that the closer IT comes to 100% cost varibality with business volume the better.
In my experience, both sides try to crucify the other rather than picking a partner and jointly planning the journey.
Any one of you that has been forced to compete EVERYTHING and ended up with the Tower of Babel knows what I mean.
If anyone is considering "the cloud" as an option, I would be delighted to discuss the pros and cons. I have earned a unique perspective of what works, what dosent't work and how to align the strategic intersts of all parties OR NOT.
On the house.........
Rick Bolandz
Managing Partner
Internatinal Consultants Consortium LLC
202-833-8736
iccltd@starpower.net